Delta, American, United see better premium travel

AP News
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Posted: Dec 09, 2009 3:24 PM

The nation's three largest airlines say they're seeing an uptick in demand for business and premium tickets, which could signal the beginning of a recovery in all-important corporate travel.

At Delta Air Lines Inc., chief financial officer Hank Halter said Wednesday the company sold more corporate tickets in November than it did in the same month last year _ the first such increase all year.

But Delta, the world's largest airline company, had to cut prices to get those sales. Revenue from corporate tickets in mid-November was 10 percent lower than a year ago, Halter said.

The treasurer of American Airlines' parent, AMR Corp., said both leisure and premium travel were beginning to pick up, especially on international routes. Premium travel includes leisure travelers flying first- or business-class.

The CFO of United Airlines also said corporate travel was continuing to improve.

But not everyone in the industry sees the glass half-full.

"Business travel still lags," said Gary Kelly, the chairman and CEO of Southwest Airlines Co., which carries more U.S. passengers than anyone. "I'm not expecting strong economic growth in 2010, and likewise I'm not expecting a rebound in business travel in 2010."

Kelly and the other executives made their comments at a Next Generation Equity Research conference in New York.

Business travelers matter because they fly regularly and often pay higher, last-minute fares. Their numbers apparently hit bottom in the spring. Delta's revenue from corporate tickets hit a low point in April, off 50 percent from the year before, but has gradually recovered since then.

With the outlook improving, Halter said Delta's revenue per available seat mile _ a closely watched indicator of financial performance in the airline business _ will probably turn positive in the first half of next year.

Jamie Baker, an airline analyst at JPMorgan, called the Delta comments about revenue encouraging, although they were offset by a forecast of slightly higher than expected fourth-quarter costs.

At American Airlines, treasurer Beverly Goulet said advance bookings through February are flat with a year ago. She said international bookings are up nearly 3 percentage points but are down in the U.S.

American and other airlines have been raising fares, including surcharges for peak travel days, and other fees. Goulet said the strategy seems to be working.

Because of its routes to business destinations such as Washington, London and Frankfurt, United, the nation's No. 3 carrier, has been hit hard by the drop in business travel. But CFO Kathryn Mikells said corporate travel has been improving since May.

"The good news is that there are signs of recovery on the horizon," she said.

US Airways Group Inc. said revenue from corporate accounts grew about 5 percent in November, the first improvement over 2008's monthly numbers.

"I think this is very indicative of a corporate demand recovery," said US Airways President Scott Kirby.

Airlines aren't waiting for demand to bounce back. They are pruning unprofitable flights to save money and perhaps help them boost prices by reducing the supply of seats.

Southwest said it's gaining customers because it doesn't charge fees on the first two checked bags. But it has joined the rest of the industry in raising prices.

"We are raising fares," Kelly said. "We are just trying to do that in a way that's positive to revenue and not negative."

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AP Airlines writers Harry R. Weber in Atlanta and Joshua Freed in Minneapolis contributed to this report.